Management Report: Portfolio Theory and Yield Curve Movements

Portfolio Theory and its Contributions to Financial Asset Understanding

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This coursework should be presented in the form of a Management Report which is divided into sections as follows: Title/Front Page (Students Name and Matriculation Number, Course, Name of the Module, Word Count), Contents Table, Executive Summary, Bibliography and References, Appendices. Coursework should be between 2500-3000 words in length (excluding appendices) and in typed format.

This is an individual assignment and no part of this work should be shared with any other students.

Coursework tasks:

1.Critically evaluate the main contributions of Portfolio Theory in the understanding of risk and return characteristics of financial assets. Select any two stocks from the UK market that you consider have low correlation in between them. Download monthly data on these stocks for the last five years and based on that, show the minimum risk portfolio of these stocks (at least 20% in each stock), maximum return portfolio, optimal (risk adjusted) portfolio, and capital market line. Compare the performance of optimal portfolio with the market portfolio.          

        (40% of the total marks)

Note:

·(Any two stock of your own – from each sector)

·Select the industry with low correlation

·Calculate the standard deviation, correlation and expected returns on each of the stock. (monthly data)

·Identify the portfolio of the two stock (20% or 18%)

·The two socks – Market – FTSE index or Data Stream

2.Critically appraise the importance of the signals coming from the movements in the Yield Curve of a country. Compare the current yield curve to the shape of the yield curve a month ago and identify the signals in terms of future economic activity, interest rates and inflation rates.

(40% of the total marks)

Note:

·Use Financial Times – select the yield curve (UK yield Curve) for last month and this month.

·Download the data by using the chart or graph and table. (download the data curve for 3/07/2020) with that of a month ago. State the date of when of the download data in the work.

·Identify the signals in the last month

·Identify the type of changes in the yield curve in the last one month and the signals behind the changes (Financial Times)

·Bonds (Increase in the yield curve) – what is happening in the price of the long- or short-term bonds.

·Linking the signals – inflation, interest rate and future economic activity.

·Use proper references – detect the signals in relation to the financial press or comment in the current situation. (download from investing.com)

3.Critically review the performance of the UK stock market (in the last six months) in the context of the criticism of the Efficient Financial Markets Hypothesis.

(20% of the total marks)

Note:

·Explain the Efficient Financial Markets (prices – reflections)

·Identify the criticisms (Asset pricing bubbles)

·It explains in the long run (prices starts to reflect in)

·Identify the anomalies and relate it to the data (behavioural finance)

·Relevant – download the graph of London stock exchange for the last six months.

·Criticise efficient financial markets hypothesis